Zynga stock: CEO wants workers to give up shares

Zynga stock: Zynga's CEO is pushing employees of the online gaming company to give back shares of their Zynga stock before the company goes public. Is Zynga's pressure on employees legal?

Stephen Lam/Reuters/File

The Zynga logo. The online gaming company, which produces Farmville and Zynga poker, is pressuring employees to give up their shares of Zynga stock in preparation for the company's public debut.

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November 11, 2011

By The Associated Press

New York

Zynga CEO Mark Pincus is pushing some of the online game company's early employees to give back stock they own ahead of the company's initial public offering of stock, according to a published report Thursday.

The Wall Street Journal said that Pincus, who gave out stock freely to keep top talent early on, developed "giver's remorse."

That's because some of the early employees didn't contribute as much to the company as those hired later. But because they got in early, they got more shares.

Zynga's games include "FarmVille," ''Zynga Poker" and "CityVille" and are mostly played on Facebook. The company has filed for an IPO but has not yet said how much it plans to raise. Zynga is among several technology companies that either had IPOs recently or are planning to soon. Groupon Inc. had its IPO last week, and Facebook is likely to have one next year.

Getting into a hot startup early on and reaping the rewards after a sale or IPO is a big part of Silicon Valley culture. The promise of a big payout is what gets a lot of people working long hours with little compensation early in a startup's life.

But the Journal said Pincus wanted people to keep contributing to the company even when it got big rather than just "rest and vest" — that is, wait to cash in.

The Journal cited unnamed people with knowledge of the matter. Reached by The Associated Press, Zyngadeclined to comment because it is in a federally mandated quiet period ahead of its IPO, which is expected this year. The company, which is based in San Francisco, has about 3,000 employees.

Lynne C. Hermle, a Silicon Valley employment lawyer who does not represent Zynga, said the practice happens at other companies, too.

"I have not seen it publicized but it does happen," she said, citing attorney-client privilege for not naming the companies. "Sometimes it's a negotiation and sometimes it's a fight."

Whether Zynga could get into legal trouble over the issue could depend on whether the stock options it wants back are vested or unvested. The Journal said that in Zynga's case, demands to return stock only applied to shares that have not yet vested. If an employee leaves a company before stock options vest, they lose it. Vested shares, meanwhile, have a fixed value and can be sold.

Hermle, partner at the San Francisco law firm Orrick, Herrington & Sutcliffe LLP, said there "aren't any legal implications with respect to unvested options."

"Certainly nothing that prevents an employer from saying to an executive 'you are making much too much money, accept a lower amount or we'll have to let you go,'" she said.